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Nordea Kredit Covered BondsQ1 2020 Debt Investor Presentation
Table of contents
1. Nordea covered bond issuance in brief
2. Nordea Kredit in brief
3. Cover pool key characteristics
4. Asset quality
5. Underwriting criteria
6. Covered bond framework
7. Macro
8. Contacts and links
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5
7
11
14
16
18
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1. Nordea covered bond issuance in
brief
3
Four aligned covered
bond issuers with
complementary roles
Legislation Norwegian Swedish Danish Finnish
Cover pool assets Norwegian residential mortgages Swedish residential mortgages primarily Danish residential & commercial
mortgages
Finnish residential mortgages primarily
Cover pool size EUR 14.1bn (eq.) EUR 51.9bn (eq.) Balance principle EUR 22.2bn
Covered bonds outstanding EUR 8.8bn (eq.) EUR 32.7bn (eq.) EUR 56.9bn (eq.)* EUR 14.8bn
OC 61% 59% 9%* 50%
Issuance currencies NOK SEK DKK, EUR EUR, GBP
Rating (Moody’s / S&P) Aaa / - Aaa / AAA Aaa** / AAA Aaa / -
Nordea covered bond operations
• Covered bonds are an integral part of Nordea’s long term funding operations
• Issuance in Scandinavian and international currencies
• ECBC Covered Bond Label on all Nordea covered bond issuance
Nordea Mortgage BankNordea Kredit Nordea HypotekNordea Eiendomskreditt
4
Q1 2020
* Reported values only include CC2. Nordea Kredit no longer reports for CC1 (RO), as this capital centre only accounts for a minor (<1%) part of the outstanding volumes of loans and bonds
** Unsolicited rating.
2. Nordea Kredit in brief
5
Nordea Kredit – in brief
• 100% owned subsidiary of Nordea Bank Abp - the largest Nordic financial institution
• Operates as a mortgage credit institution with the main purpose of granting mortgage credit loans funded by issuing
covered bonds
• Founded in 1993 and supervised by the Danish FSA (DFSA, Finanstilsynet)
• Market share 13.9% of the Danish mortgage credit market
• All covered bonds are rated Aaa* (Moodys) and AAA (Standard & Poor’s)
• Dedicated liquidity line provided by Nordea Bank Abp to manage daily cash needs and ensure compliance with external
and internal requirements regarding liquidity management
• Profit before tax 2019 DKK 2,373m
• Cost-income ratio 2019 11.4%
• Capital ratio 2019 (of which Tier 1) 27.0% (24.4%)
• More information at nordeakredit.dk
6
Q1 2020
* Unsolicited rating.
3. Cover pool key characteristics
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Cover pool key characteristics
Outstanding covered bonds EUR 56.9bn
Cover pool content Mortgage credit loans secured by mainly residential property
Geographic distribution Throughout Denmark with concentration in urban areas
Weighted average LTV 57.4%
Average residential loan size EUR 188,663
Over collateralisation, OC 8.7%
Rate type Fixed rate 72.2%, Floating rate 27.8%
Amortization Interest only 46.2%, Amortizing 53.8%
Substitute assets EUR 8,180m
Pool type Static
Loans originated by Nordea Kredit
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Q1 2020
Loan portfolio
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Loan portfolio by property category Portfolio by loan type
Share of interest-only mortgages Market share1 – 13.9% overall
Total
DKK 400.5bn
1) Market share of the Danish mortgage credit market
68%
11%
9%
10%
2%
Owner occ. dwellings & holidayhomes
Private rental housing
Commercial properties
Agricultural properties
Other properties
40% 40% 42% 42% 43% 44%
26% 27% 27% 26% 25% 25%
25% 26% 26% 27% 28% 28%
8% 6% 5% 4% 4% 4%
0%
25%
50%
75%
100%
Q4 2016 Q4 2017 Q4 2018 Q3 2019 Q4 2019 Q1 2020
ARM 1-2Y
ARM 3-10Y
Floating Rate
Fixed Rate
46.6%45.5% 45.4% 45.8% 45.8%
30%
35%
40%
45%
50%
55%
Q4 2017 Q4 2018 Q3 2019 Q4 2019 Q1 2020
4.6%
11.4% 12.0%
15.7% 16.2%
0%
5%
10%
15%
20%
Other properties Private rentalhousing
Commercialproperties
Agriculturalproperties
Owner occ.dwellings &
holiday homes
Loan portfolio by regions
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All property categories
Total
5.82m
32%
14%21%
23%
10%
Danish population by regions
40%
18%
15%
22%
4%
The Capital Region ofDenmark
Region Zealand
Region of Southern Denmark
Central Denmark Region
The North Denmark Region
4. Asset quality
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Loan to value (LTV) – loan for residential properties
Loan type
Weighted average LTV - indexed
Residential loans
60.6%
Commercial loans
45.8%
LTV buckets Nominal (DKKm) % Loans Nominal (DKKm) % Loans
>0 - <=40 % 204,035 65.0% 63,518 73.6%
>40 - <=50 % 40,876 13.0% 11,437 13.3%
>50 - <=60 % 32,432 10.3% 7,265 8.4%
>60 - <=70 % 21,904 7.0% 2,508 2.9%
>70 - <=80 % 11,087 3.5% 844 1.0%
>80% 3,441 1.1% 720 1.0%
Total 313,775 100.0% 86,292 100.0%
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Q1 2020
Asset quality
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Loan to value (LTV) weighted averageArrears (owner occupied dwellings and holiday homes)1
1) Arrears as a percentage of the Q4, 2020 scheduled payments – 3½ months after due date
63.2%
61.8%
60.2%
58.6%58.4%
57.4%
55%
57%
59%
61%
63%
65%
Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019 Q1 2020
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
All mortgage banks (including Nordea Kredit)
0.24% (last 0.21%)
Nordea Kredit 0.17%
(last 0.15%)
5. Underwriting criteria
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Underwriting criteria
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Private households
• Behavioural score and individual credit assessment based on income information – pay slips and recent tax
statement
• Always household budget ”before-after” (based on 30 years annuity and fixed interest rate)
• In case of adjustable or floating interest rate additional stress test based on the variable interest rate + 1
percentage point – currently at least 4% p.a.
• Individual valuation of the pledged property
Corporates, agriculture etc.
• Financial analysis with adjustments to market conditions
• Verification of key ratios and other requirements in Nordea general real estate lending policy
• Rating according to Nordea’s in-house models
• Individual valuation of the pledged property
• Yearly repricing based on reassessment
Q1 2020
6. Covered bond framework
16
2
• Legal framework
• The Financial Business Act
• The Mortgage-Credit Loans and Mortgage-Credit Bonds, etc. Act with several detailed executive orders
• Registration
• An issuing institution is required to maintain a static cover pool
• Mortgage deeds are registered in the Public Land Registry
• Limits on LTV ratio – based on the value of the property at loan origination
• 80% for housing loans (residential property)
• 60% for commercial loans (legislative limit 70%)
• Static cover pools – must provide supplementary capital if LTV-limits are breached
• Matching rules
• Nordea Kredit complies with the strict balance principle utilising match funding leaving only insignificant
interest rate and foreign exchange risk
• Public supervision
• The DFSA performs supervision and inspection on an ongoing basis
Danish covered bond framework
17
Q1 2020
7. Macro
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Nordic economies – years before back to normal
Country 2018 2019 2020E 2021E
Denmark 2.4 2.2 -3.0 (1.5) 2.4 (1.5)
Finland 1.6 1.0 -5.0 (1.0) 2.7 (0.5)
Norway 2.2 2.3 -6.2 (1.8) 7.3 (1.6)
Sweden 2.3 1.3 -4.6 (0.8) -0.2 (1.8)
GDP development Unemployment rate
Comments GDP, %, U-shaped scenario
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• The global economy is in recession and the next few months will be
extremely challenging. Lockdowns will trigger lower consumer spending
and investments on top of the disruptions in the global supply chain
• The Nordic countries have responded to the COVID-19 crisis with
lockdowns of a varying degree. The extent of the economic
consequences depends on when restrictions will be lifted – not just in
the Nordics but also in the rest of the world
• Unemployment is expected to surge. Relatively quick recoveries are
expected in Denmark, Finland and Norway, but unemployment will
remain elevated in Sweden for a long time
Source: Nordea Markets and Macrobond
Dotted lines are based on Nordea's baseline scenarios and are not official forecasts.
Forecasts from Nordea January Economic Outlook in parentheses.
Visit E-markets.nordea.com for an overview of all scenarios.
Nordic interest rates – low for very long
Source: Nordea Markets and Macrobond
Household debt Household savings
Policy rates Comments
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• Household debt is likely to level off in the coming year, in line with
decelerating activity on the housing market. However, the debt ratio
remains at very high levels in all countries. Uncertainty and higher
unemployment will lead to increased precautionary savings, which could
affect consumption negatively
• Norway has seen two rate cuts totalling 125 bps in one week. Policy
rates have been left unchanged in Sweden and the Euro area while
Denmark hiked the interest rate due to technical reasons. Liquidity
measures have been ramped up by all central banks, and the
governments have launched large fiscal packages to cushion the fall.
Monetary policy will remain accommodative for a long time
House price development in the Nordics
House prices Household’s credit growth
Comments
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• Rising unemployment and high uncertainty will take its toll on the Nordic housing markets. Before the crisis, low interest rates kept the Nordic housing
markets afloat and stable price increases were expected in the coming years. Declines are expected in all countries this year but low interest rates,
accommodative central banks and reduced supply should limit the downside in the short term.
• Household credit growth has stabilized in the last years. In Sweden and especially Finland, credit growth was picking up while Denmark was trending
sideways. Nordic households will likely increase their precautionary savings due to high levels of uncertainty, which could affect consumption growth
negatively. Increased savings and lower activity in the housing market will dampen credit growth.
Source: Nordea Markets and Macrobond
8. Contacts & Links
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Contacts
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If you have any questions, please feel free to contact:
Peter Brag
Senior Treasury Manager, Long Term Funding
+45 3333 1663
Lau Kingo
Chief Treasury Manager, Long Term Funding
+45 3333 1751
Links to more information
Nordea Kredit Legislation
▪ Nordea Kredit ECBC harmonised transparency templates.Link: https://www.nordea.com/en/investor-relations/reports-and-
presentations/bonds/nordea-kredit-covered-bonds/
▪ Nordea Kredit financial reports.Link: https://www.nordea.com/en/investor-relations/reports-and-presentations/subsidiary-
reports/nordeas-danish-subsidiary-reports/
▪ Danish mortgage financing is supervised by the DFSA (Finanstilsynet). Link: https://finanstilsynet.dk/en
▪ Relevant legislation can be found in English at the DFSA’s English website.Link: https://finanstilsynet.dk/en/Lovgivning
▪ All mortgage bank legislation can be found in Danish at the DFSA’s Danish
website.Link: http://finanstilsynet.dk/da/Lovgivning/Lovsamling
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